The Derivative – It’s Just an Insurance Policy for the 1% that Nuked the 99% and Bailed Out the Richest Folks on the Planet.

Most sane folks, Libertarians and Ron Paul supporters understand that the Federal Reserve only exists to enable Wall Street in the facilitation of the biggest criminal enterprise and heist in human history, a Bankster heist that’s been going on since the Federal Reserve was created in 1913. America has suffered through the Great Depression because of the Banksters, endless bankrupting wars of empire facilitated by the Banksters and now we are deeply ensconced in another financial disaster that blew in the fall of 2008.  The global economy is mired in misery and profound human suffering is a reminder of the power of the elites.  The 99% may be in agony as they struggle to survive but the Bankers and 1% are indeed celebrating yet another coup as they concentrate wealth and power.

But what really happened, why did it happen and why is it still happening? The answer boils down to a financial creature known as derivatives. Real estate was the fuse that triggered the 2008 financial meltdown. Basically, the banksters spent years making and packaging fraudulent loans for resale and the only qualifying criteria was “no money, no problem, no job, no problem, bad credit, no problem”. These ‘cash for trash loan’ packages were sold to folks, pension funds and investors all over the world as high quality investments. Wall Street literally paid the rating agencies for high ratings. In fact, the customarily staid Bloomberg News chirped in and reported on the practice of the rating agencies to churn junk into stellar AAA rated securities, here.

Employees at Moody's Investors Service told executives that issuing dubious creditworthy ratings to mortgage-backed securities made it appear they were incompetent or ``sold our soul to the devil for revenue,'' according to e-mails obtained by U.S. House investigators… An e-mail that a S&P employee wrote to a co-worker in 2006, obtained by committee investigators, said, ``Let's hope we are all wealthy and retired by the time this house of cards falters.''

But the banksters didn’t just make, package and sell the junk mortgages they originated. They underwrote securities and bet against the very securities they underwrote and sold to its victims with bought and paid for ratings from Standard and Poor, Moody’s and other rating agencies.

McClatchy Newspapers did some critically important, quality investigative journalism exposing Goldman Sachs for its role in the mortgage debacle in a piece titled How Goldman secretly bet on the US housing crash, here.

In 2006 and 2007, Goldman Sachs Group peddled more than $40 billion in securities backed by at least 200,000 risky home mortgages, but never told the buyers it was secretly betting that a sharp drop in U.S. housing prices would send the value of those securities plummeting…..

Only later did investors discover that what Goldman had promoted as triple-A rated investments were closer to junk.

Now, pension funds, insurance companies, labor unions and foreign financial institutions that bought those dicey mortgage securities are facing large losses, and a five-month McClatchy investigation has found that Goldman's failure to disclose that it made secret, exotic bets on an imminent housing crash may have violated securities laws…..

To piece together Goldman's role in the subprime meltdown, McClatchy reviewed hundreds of documents, SEC filings, copies of secret investment circulars, lawsuits and interviewed numerous people familiar with the firm's activities….

The full extent of the losses from Goldman's mortgage securities isn't known…

From 2001 to 2007, Goldman hawked at least $135 billion in bonds keyed to risky home loans, according to analyses by McClatchy and the industry newsletter Inside Mortgage Finance.

In addition to selling about $39 billion of its own risky mortgage securities in 2006 and 2007, Goldman marketed at least $17 billion more for others.

It also was the lead firm in marketing about $83 billion in complex securities, many of them backed by subprime mortgages, via the Caymans and other offshore sites, according to an analysis of unpublished industry data by Gary Kopff, a securitization expert.

In at least one of these offshore deals, Goldman exaggerated the quality of more than $75 million of risky securities, describing the underlying mortgages as "prime" or "midprime,"….

In early 2007, the firm's mortgage traders also bet heavily against the housing market….

The swaps contracts would pay off big….

McClatchy even admits that its investigation barely even scratched the surface. Other Wall Street operators were indeed doing the same thing.

In 2000, the top ten Wall Street investment banks did $245 billion in the mortgage securitization business but by 2006 the mortgage backed securities business mushroomed to $1.5 trillion in one year alone. The mortgage business was a BIG business and every step along the way the banksters got a cut.

Matt Taibbi, an astute journalist with the Rolling Stone magazine, did a brilliant expose of the banksters. One piece was titled The Big Takeover and starts with “It’s over – we’re officially, royally fucked. No empire can survive being rendered a permanent laughingstock, which is what happened as of a few weeks ago, when the buffoons who have been running things in this country finally went one step too far." Taibbi correctly states that you can’t understand the financial mess without first understanding AIG. Taibbi bluntly and accurately summarizes the US financial system:

Nor did anyone mention that when AIG finally got up from its seat at the Wall Street casino, broke and busted in the afterdawn light, it owed money all over town – and that a huge chunk of your taxpayer dollars in this particular bailout scam will be going to pay off the other high rollers at its table. Or that this was a casino unique among all casinos, one where middle-class taxpayers cover the bets of billionaires.

That’s it folks – our financial system in a nutshell. It’s all about Wall Street screwing Main Street, taxpayers and taking down the economy of the entire planet. Wall Street exists for no reason except to plunder and plunder on a massive scale. Taibbi provides considerably more gory details in his article that prints out to 20 “must read” pages and he only highlights the really salacious stuff. The real story goes much deeper. Wall Street could not possibly get away with its crimes without a partner. Wall Street’s partner in crime has always been Congress who facilitates the “rape of the middle class” and the continuation of the greatest heist in human history. Congress does not care about We the People. Those traitorous thieves know who their bosses are and they humbly genuflect before them while kissing the rings of the money gods on Wall Street. It’s how candidates and the RNC/DNC machines get funded.
Now how did Wall Street pull off its heists? Derivatives.

Why are derivatives so important? Because they are estimated at between $600 trillion and $1.2 quadrillion.

 Top Derivatives Expert Estimates Size of the Global Derivatives Market at $1,200 Trillion Dollars … 20 Times Larger than the Global Economy

For years, there have been rumors that there is over a quadrillion – one thousand trillion – dollars in notional value of outstanding derivatives. But no one really knew. Even though the Bank of International Settlements regularly publishes tables showing the amounts of different types of derivatives, some of the categories are ambiguous, and so it has been hard to get a good handle on what’s really out there.

For example, one blogger wrote last year:

Estimates of the notional value of the worldwide derivatives market go from $600 trillion all the way up to $1.5 quadrillion.

Let put those figure into perspective. The entire GDP of the planet is about $65 trillion, here.

Furthermore, the entire net worth of the planet is estimated at about $200 trillion.

So how did the world end up with a $600 trillion to $1.2 quadrillion derivatives gambling casino that substantially exceeds the value of everything on the planet and by an incredibly wide margin? It all goes back to a 1999 piece of legislation signed by Bill Clinton and supported by Republicans and Democrats called the Financial Services Modernization Act (FSMA). The gory details of the FSMA were astutely laid out in a Global Research 11/12/08 piece by Michel Chossudovsky titled “Who are the Architects of the Economic Collapse” who names the big names and summarizes the bill:

Under the 1999 Financial Services Modernization Act, effective control over the entire US financial services industry (including insurance companies, pension funds, securities companies, etc.) had been transferred to a handful of financial conglomerates and their associated hedge funds….

Summers, Geithner, Corzine, Volker, Fischer, Phil Gramm, Bernanke, Hank Paulson, Rubin, not to mention Alan Greenspan, al al. are buddies; they play golf together; they have links to the Council on Foreign Relations and the Bilderberg; they act concurrently in accordance with the interests of Wall Street; they meet behind closed doors; they are on the same wave length; they are Democrats and Republicans.

While they may disagree on some issues, they are firmly committed to the Washington-Wall Street Consensus. They are utterly ruthless in their management of economic and financial processes.

Read the rest here

Global Research

With their new powers from the Financial Services Modernization Act of 1999, the Banksters really did go wild and were allowed to engage in massive leverage and all kinds of insidious things that would put ordinary folks behind bars.

Derivatives come in many variations including credit default swaps (CDS), foreign exchange derivatives, commodity derivatives, equity derivatives etc. Derivative gambling is essentially an unregulated “anything goes” casino where bets are placed on the probability of an event occurring or not occurring and derivatives are really nothing more than private insurance contracts to cover wagers. Because they are private contracts and are not traded on any regulated exchanges for disclosure purposes, this adds to the element of glamour and secrecy.
If you want to invest $10,000 in a high return, high risk investment but don’t like the level of risk you can cover your risk by contracting with me. While I may only have 2 cents in the bank, I will offer you a guarantee against any losses on your $10,000 investment in exchange for $100.00. You are happy and pay me my hundred bucks and I now have $100.02 in the bank. The investment is crap and goes bust. You ask me to cover the losses. But I’ve paid myself a $100 bonus, spent it and am back to 2 cents in the bank.

What have I done? I illegally operated an insurance scam. The reason the insurance industry is heavily regulated is because it needs reserve cushions to pay claims. The Banksters fully comprehended that they were buying and selling insurance and they also knew that there were no reserves to pay the claims; they held the power to force the taxpayers to pay. Moreover, Banksters understood full well that they had to sell the scheme to Congress and regulators by avoiding any mention of the word “insurance” so they dubbed their delusion of unknown cosmic origins “Derivatives”.

The Financial Services Modernization Act didn't create derivatives; they had been around a long time but they exploded after the FSMA was signed into law.  Congress literally created an unregulated gambling casino, a casino big enough and dangerous to bring down the entire financial systems and economies of the world.

So when Matt Taibbi speaks of understanding AGI, he is correct. AIG, once a reputable and solid insurance company that insured “real and tangible things” firmly anchored in gravity, jumped into the business of insuring Wall Street’s gambling addiction.

Goldman Sachs, AKA “Goldmine Sachs” bought a lot of AIG insurance, as did other big players on Wall Street. AIG couldn't pay the casino gambling losses and was quietly bailed out by the Federal government to the tune of nearly $200 billion. Nobody knows what AIG did with all that taxpayer cash but it is widely believed and totally logical that “Goldmine” Sachs and other Wall Street operators had their gambling losses covered by the American people; Goldman supposedly reaped at least $20 billion. Because Goldman has friends in high places (Treasury, Congress, Senate Foreign Relations Committee, all congressional banking committees, Federal Reserve), they had the raw and absolute power to not only save themselves at taxpayer expense but to even further consolidate their enormous powers.

The 2008 $700 billion initial Bankster Bailout Bill that Congress Critters lovingly embraced was just a tiny drop in the bucket. The real damage was done by Congress vastly expanding Federal Reserve powers. Ron Paul’s Audit the Fed bill was squashed by Democrats Barney Frank and Nancy Pelosi who prevented a vote on the house floor. Instead, Frank engineered a one time disclosure of sorts. The one time disclosure forced the Fed to disclose a ton of stuff it certainly didn't want made public, like how the real dollar amount of Bankster Bailout was $16 trillion.

The Looting Of America: The Federal Reserve Made $16 Trillion In Secret Loans To Their Bankster Friends And The Media Is Ignoring The Eye-Popping Corruption That Has Been Uncovered

A one-time limited GAO audit of the Federal Reserve that was mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act has uncovered some eye-popping corruption at the Fed and the mainstream media is barely even covering it. It turns out that the Federal Reserve made $16.1 trillion in secret loans to their bankster friends during the financial crisis. You can read a copy of the GAO investigation for yourself right here. These loans only went to the "too big to fail" banks and to foreign financial institutions. Not a penny of these loans went to small banks or to ordinary Americans. Not only did the banksters get trillions in nearly interest-free loans, but the Fed actually paid them over 600 million dollars to help run the emergency lending program. The GAO investigation revealed some absolutely stunning conflicts of interest, and yet the mainstream media does not even seem interested. Solid evidence of the looting of America has been put right in front of us, and yet hardly anyone wants to talk about it.

But the banksters are no ordinary thieves. The derivative insurance policies have some other very peculiar attributes. If you own your home, only you as the owner can legally insure the property. But what if you could buy insurance on your neighbor’s house? You could burn your neighbor’s house down and collect the insurance. In the real world of insurance, multiple policies cannot be written on the same property because insurance companies will only pay on policies owned by owners who paid their insurance premiums. But in the whacky world of Wall Street insurance, these guys wrote multiple “insurance policy” contracts on the same asset and collected. In a Fool.com article titled Here's How Messed Up Our Financial System Is, Morgan Housel brings the point home:

See, in everyday life, you can't insure things you don't own. Thankfully, your neighbor can't take out homeowners insurance on your house. If the entire town could buy insurance on one house, they'd have a huge incentive to make sure it was destroyed. They'd burn it down, blow it up, bulldoze it, what have you, pocket gobs of insurance claims for their trouble, and happily move onto the next town. For good reason, laws prohibit this.

With credit default swaps, there are no such laws. Investors can take out infinite amounts of insurance on debt products they don't own. This seriously distorts the motives and incentives between buyers and sellers. CDSes often don't act as insurance, but a tool to manipulate stupidly large amounts of money and rip gaping holes in the financial system, a la AIG (NYSE: AIG).

It's simply a vast, unregulated game of poker. Spun the other way, CDS buyers have an incentive to make sure underlying debt defaults. They can achieve this by buying CDSes for multiple times a company's debt load and causing a run on its assets. Indeed, this is exactly what many believe ultimately pushed Lehman Brothers into bankruptcy.

Read the rest here

The Motley Fool

But the schemes are even more devious when it comes to Goldman Sachs, the ultimate insider. When an investment goes bust, its value doesn’t go to zero and may only drop 20-30-40% or so. Therefore, the payout is never at face value unless of course you are Goldman Sachs or Wall Street connected. When AIG was going bust and had no cash to pay off the claims on derivative contracts, AIG was actually attempting to negotiate a 40% payoff. But enter Timothy Geithner who at the time was Chairman of the New York Fed (not yet Treasury Secretary). Geithner authorized a payout at par or 100%, an act that simply stunned observers. According to Bloomberg:

Beginning late in the week of Nov. 3, the New York Fed, led by President Timothy Geithner, took over negotiations with the banks from AIG, together with the Treasury Department and Chairman Ben S. Bernanke’s Federal Reserve…. After less than a week of private negotiations with the banks, the New York Fed instructed AIG to pay them par, or 100 cents on the dollar. The content of its deliberations has never been made public.

The New York Fed’s decision to pay the banks in full cost AIG -- and thus American taxpayers -- at least $13 billion. That’s 40 percent of the $32.5 billion AIG paid to retire the swaps. Under the agreement, the government and its taxpayers became owners of the dubious CDOs, whose face value was $62 billion and for which AIG paid the market price of $29.6 billion. The CDOs were shunted into a Fed-run entity called Maiden Lane III...

Read the rest here

Bloomberg

But Turbo Timmy and Helicopter Ben weren’t just dealing with the extremely lucrative taxpayer funded losses of the casino derivative gambling habits of Wall Street, they were also arranging the public purchase of all the fraudulent mortgage backed securities that Wall Street packaged and sold as AAA securities. If the Fed didn’t buy back the “trash for cash” mortgage backed securities that Wall Street was already buying back from angry victims who threatened lawsuits and criminal investigations, Wall Street and its bought and paid for credit rating agencies like Moody’s and S & P would be in jail for the crime of the century. Owning a government certainly has its advantages.

The Federal Reserve purchased $1.2 trillion in mortgage backed securities, here.  Nothing like a bankster having the raw and absolute power to dump its fraudulent 'cash for trash' bad paper on the taxpayers but that's exactly what happened.  First, the Fed created the 'out of thin air' electronic money for the banks to finance their colossal mortgage scams and when the junk mortgages defaulted, Blackhawk Bernanke bought them.

America used to be a place where crooks were locked up in jail but now the grand larcenists occupy the highest echelons of power within government and industry. Rich people who made stupid investments used to just lose their money. Now the rich are on welfare.

Abby Hoffman: “America, land of the free. Free means you don’t have to pay”.

Indeed.

Wall Street never pays for its idiotic blunders because Main Streets covers the losses of high rollers at the biggest casino on the planet. The banksters feed like gangster gluttons on its victims, devours them and tosses the picked bones back to the American public because we are the dogs begging to chew the bones the banksters picked clean.

If America wants honest bankers, we need to just allow the money manipulators and financial fraud artists to go bankrupt and go straight to jail instead of bailing them out and larding them up with the carcasses of skinned alive Americans.  The Banksters never have their own skin in the game at the gambling tables.

But God has now entered the scene. In troubling times seeking out a deity is not unusual. Lloyd Blankfein, Chairman of Goldman Sachs, declared he was doing “God’s work” and the Executive Branch and Congress have only intensified their worship of the planet’s most powerful pagan deity. If anything, they are truly prayerful as they utter:

“May the Lloyd be With You, AMEN”.